Shares of Micron MU, SanDisk and other semiconductor companies edged lower during premarket trading on Friday ahead of the much-awaited Wall Street debut of SK Hynix through its American depositary receipts (ADRs).
The South Korean memory chipmaker and Nvidia supplier has raised $26.5 billion through its US share offering, making it the largest-ever US listing by a foreign company.
Micron was down about 2.6% during premarket trading, while SanDisk declined more than 3.8%. Western Digital fell 2.78% and Seagate Technology was down about 2.5%.
Shares of Marvell Technology and Lam Research, both key players in the memory chip supply chain, also slipped 2% and 3.4%, respectively.
Memory stocks face fresh competition
The decline in memory stocks can be attributed to a broader weakness across the chip sector after Thursday’s rally.
Intel also fell 2.6% in premarket trading, while Nvidia and AMD were down less than 1%.
However, SK Hynix’s Nasdaq debut is also expected to reshape the US memory-chip trade, which has so far been dominated by Micron.
Some investors could rotate funds out of Micron and into the South Korean memory-chip maker.
Analysts have argued that SK Hynix’s US listing could help narrow its long-standing valuation gap with global peers.
Trading alongside Micron on a major US exchange may also lead to a re-rating of the company among international investors.
According to Thomas Hughes of MarketBeat, while Micron’s long-term outlook remains bullish, its share price could lag SK Hynix in the near to medium term.
“The risk is that investors will take profits and reduce their holdings of MU in order to shift capital into SK Hynix,” he said.
“In this scenario, the best-case is that MU’s stock price moves sideways within a range near existing highs, while the worst-case is that it experiences a more robust correction than it already has. Down more than 20% from its post-earnings highs as of early July, Micron’s share price could shed another 30% before hitting solid support,” he added.
Some analysts see upside for Micron
Not all analysts believe SK Hynix’s listing will be negative for Micron.
According to trader and financial analyst Dmytro Lebid, SK Hynix’s “Korean discount” will be eliminated following its US listing, potentially supporting higher valuations across the memory-chip sector, including Micron.
“As the South Korean giant was inaccessible to US investors in the domestic market, its multiples were undervalued. The issue, though, will boost these multiples, which will make Micron’s multiples more fair as well (for example, SK Hynix’s current P/E ratio is 18.3x, compared to Micron’s 22.0x). The bottom line is that the valuation ceiling for memory players will shift to higher levels,” he said.
Lebid also believes the listing could attract additional institutional capital into the sector.
“Many investors face administrative barriers to purchasing shares on the Korean KOSPI exchange. Since SK Hynix’s listing on Nasdaq will draw additional investor attention to memory market assets, this may increase liquidity from general-purpose funds as well. Since Micron serves as a national benchmark in the US, this may further boost demand for its shares,” he said.
Largest foreign listing in the US
SK Hynix raised about $26.5 billion after pricing 177.9 million American depositary shares at $149 each.
The company is issuing 17.79 million new common shares, represented by 177.9 million US depositary shares, with 10 depositary shares equivalent to one Seoul-listed common share.
According to reports, investor demand exceeded the available shares by more than seven times despite the recent pullback in global semiconductor stocks.
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